Detroit's three carmakers-General Motors Corp., Ford Motor Co. and Chrysler Group-have been hiking incentives this year in the hope of stopping the shift in sales and market share to Asian and European makes.

The usual ploy is to raise incentives, whether customer cash back, low interest rates, lease deals or factory-to-dealer cash back, to make way for new models. But with car sales off a million units from year-earlier levels, sales at any time have become critical.

"I think the market will get weaker and demand won't pick up until sometime in 2002," predicts Susan Jacobs, president of an auto consultancy bearing her name. "Incentives are not going away."

INCENTIVES VARY

The average industry incentive in July was $2,469, but Detroit's carmakers were all higher, reported consultancy CNW Marketing/Research. Toyota Motor Sales USA's Toyota and Lexus brands were lower than the average, and Mercedes-Benz USA was the lowest of all at $1,016, CNW reports. As a group, only the Detroit makers are down in unit sales.

Incentives jumped from an average of $1,717 in the first quarter of 2000. Back in January 1996, the industry average was $1,549 and Detroit carmakers were all below that, according to CNW.

Art Spinella, VP at CNW, says incentives are less effective today. In 1990, CNW studies showed 11% of new vehicle buyers hadn't intended to buy until lured by incentive packages. Today, less than 2% of new owners are spurred by the deals, Mr. Spinella says.

Stepped up incentives in the meantime are pulling dollars from traditional media outlets. Chrysler began shifting national ad dollars this year to local ad markets and local promotions in a restructuring that decentralized decision making, says Jim Schroer, exec VP-sales and marketing.

He predicts Chrysler will have a strong fourth quarter with the launch of the all-new Dodge Ram pickup and with production up to full tilt on the all-new Jeep Liberty sport utility, and projects the automaker will "do reasonably well holding where we are on incentives."

SHIFT TO LOCAL ADVERTISING

GM has also moved national ad dollars to local advertising and promotions because "we need to move more money into retail," says Christopher "CJ" Fraleigh, executive director, corporate advertising and marketing at the auto giant. "We're in a challenging economy and we're continually faced with selling cars every day in the short-term and balancing that with supporting our brand equity long-term. We can do both."

GM's total measured media spending slid in the early months of this year. However, Chevrolet, its biggest division, spent more than it did a year ago, mainly due to the launches of the all-new Avalanche and TrailBlazer trucks. Ford is reeling from the Bridgestone/Firestone tire recall and its own vehicle quality problems that have resulted in its recall of the Explorer, Escape and Thunderbird models.

Deutsche Banc Alex. Brown predicts the auto operations of Detroit's Big Three carmakers will likely turn unprofitable within the next five years due to "negative pricing," or falling vehicles prices, especially on mid-size and large sport utilities. That's due to more intense competition and overproduction.

Deutsche Banc notes the same thing occurred in the car segment in the 1990s: the U.S. carmakers concluded they couldn't compete profitably in the car segment, so they focused on trucks (SUVs, pickups and minivans).

"It's highly unlikely" Detroit's Big Three can in the near term recover market share losses, says Brett Hoselton, senior auto analyst at McDonald Investments. At the end of August, they were down a collective 3.2 points from August 2000. At least the automakers "are getting back to normalized production levels," he says. But their break-even points have risen, so the carmakers are more closely scrutinizing their bottom lines and trying to cut costs.